My Journey As Consultant - 7

A Major Crisis and the Decision to Go Alone

 Four years into my consultancy career, in end-1986, I took the hard decision to leave the private limited company I had formed with two associates and set off on my own. I had no money in my bank since all the billings had been done in the name of the company, and I was only drawing a nominal salary which did not give any room for savings. To take care of my immediate cash needs, I borrowed some money from my brother in Chennai and landed back in Hyderabad with hope in my heart and confidence in myself to tide over this situation. 

It is tempting to form a partnership with fellow consultants as it increases reach and offers higher potential for securing contracts, besides drawing upon varied skill sets. But partnerships work well only when all partners pull their weight equally in growing the business. Many other subtle success factors also come into play. I would always urge caution before you enter into a business partnership. 

Between  September 1983 and end-1986, our billing was growing annually at more than 100 percent a year. Our turnover grew from ₹35,000 for the period September 1983 to March 1984; the next year, we ended with close to ₹1.86 lakhs; the third year we ended with ₹4 lakhs, and by March 1986 we had touched ₹8 lakhs. These numbers were very high in relation to the earning potential in those times of a salaried job.  But  year after year, we were not making any profit on our operations and posting an operating loss. This led to our inability to increase our own salaries as directors and I was noticing that our overheads of operations had grown proportionately. The most disturbing fact, however, was that all the billings during this period came from only Hyderabad, where I was active, and Bangalore where our Bangalore associate was active. Chennai was consistently drawing a blank year after year.

Another fact was that I was getting work from local clients who were already in business and looking for help in solving their problems, whereas in Bangalore the associate was focusing only on getting market surveys and project reports type of work for new units or expansion and/or diversification of existing businesses. There was therefore no convergence of business activities between the three cities and each one was running like an independent operation. 

When it came to Chennai, we found that our associate was not bringing in any business to our company. And his overhead costs, including his salary, were totally funded by Hyderabad and Bangalore operations. Initially, we attributed this to starting troubles, since Chennai was a different kind of market. However, when this continued, my Bangalore associate and I started questioning this at our quarterly board meetings, but we never got any satisfactory answers. At the same time, we noticed that our associate was simultaneously involved in trying to do other businesses locally which were unrelated to the management consulting work of our company. 

Eventually, the first shot was fired by the Bangalore associate in a board meeting that we held in the first quarter of 1986-87 at Bangalore, instead of Chennai where we normally used to hold such meetings earlier. Even before this meeting, in private conversation with me, the Bangalore associate had begun to question the relevance of the Chennai operations, along with the competence of the Chennai associate to be part of our business. 

I realised that this situation could not go on for long and decided to join the issue at this board meeting. Both of us gave an ultimatum to the Chennai associate that if we did not see any progress in getting new business in Chennai and he did not contribute to meet  the overhead of Chennai from local operations, we would have no alternative but to part ways. He made some vague promises and I realised that nothing much would come from there. The Bangalore associate also felt the same and conveyed this privately to me. We agreed to  wait for the next board meeting before making any change.

We had our next board meeting in the beginning of November 1986 and, as expected, Chennai had nothing to show while both Hyderabad and Bangalore showed increased business over the previous year’s levels. In a heated board meeting, I took the decision to quit the company as director right away, while, for some personal reasons, the Bangalore associate waited for another quarter before doing so.

So this was the point where I was forced to borrow some money from my brother and return to Hyderabad to start afresh.

However, the positive factor was that all the clients of the company in Hyderabad were essentially my own clients and I felt that they would be open to the idea of transferring the existing assignments from the company to me personally. I immediately called up each client where I had an active engagement going on and told them about the development. All of them agreed to transfer the assignments and make direct payments to me. For this purpose, I created a new proprietary firm in the name of Shika Management Services, where the name Shika was coined from the first few letters of names of my daughter, Shilpa, and my son, Karthik. I started billing my existing clients in this firm's name and, within a month, started getting healthy cash flows in my business account which made me financially comfortable. Needless to say, these amounts were several-fold higher than the meagre salary I was drawing. I had one employee working for the company in Hyderabad who also decided to come along with me since he realised that without me in the Hyderabad office he would not get paid, as all the clients had moved to my firm. In a short time, I was also able to pay back the money I had borrowed from my brother and move on.

On hearing about my quitting the previous company and starting on my own, two parallel developments took place  which improved my financial freedom. Mr GVS Murthy, who had been aware of what was coming and was trying his best to prevent us from splitting, realised that the decision I had taken was inevitable and came up with a proposal. He had several contacts in the AP state government circles and, since he had worked in AP Scooters as marketing head, they were  suggesting to him to start a consultancy-cum-marketing organisation to help small businesses. 

Since he was busy with his other work, he suggested that I join his business as an independent associate on a revenue-sharing arrangement where I would get 85% of the billing and he would retain 15% to cover the cost of maintaining his office. He also arranged to fund the operational costs upfront, and have these adjusted against the revenues every year to arrive at the sharing formula. He also offered to use his contacts to get new business which I could execute. 

True to his word, very soon he took me around and arranged for promotion of our business idea among the government and financial institutions who gave us quite a few interesting assignments with substantial billings. While I was maintaining my identity as Shika Management Services, the customers he got were billed in his firm's name and I realised that, though this arrangement was financially rewarding, I was not comfortable with losing my identity with my clients. In the long run, it would work against my self-interest. I therefore told him that, while I appreciated his good intentions and timely help, I would like to focus on promoting my firm directly and decided to part ways from that arrangement. He too felt that, since this business was not his primary focus, it was in my best interest to go ahead as I planned and continued  to be my guru and mentor.

I also realised during this time that the revenue generation from small businesses was not adequate to build a good capital base for the future. I was wondering if I could take up marketing, in Hyderabad, the products of firms located in other cities as a marketing associate when another friend approached me with an interesting proposal.

He was working for a large company selling high-end machine tools imported from Western Europe to large public sector projects coming up in Hyderabad. Since he had the necessary contacts, he had been approached by a few companies offering other capital equipment to the same clients and they were looking for a marketing associate to be appointed to do liaison and market intelligence work for them on a commission basis. He suggested that he could get the agency arrangements worked out where I would be the main partner directly working with the company and the clients, and he would be available in the background, with his wife as a partner to share the  gains from the business with me equally. 

So I promoted another firm called Shika Marketing Services as a partnership firm and signed up our first agency contract with this company. Very soon, large tenders were floated by very large public sector companies setting up new  projects and expanding existing capacities, where my principal’s offer was found to be technically and financially competitive. We bagged a good number of contracts between 1987 and 1994 and I generated good income for myself parallelly from this business while consulting was going on at its own pace. I used to tell every one that consulting was my bread and butter while marketing was my cream. 

At the same time, however, I noticed that I commanded more respect as a management consultant than as the owner of a marketing agency. This was always bugging me till 1994 when suddenly the Indian economy was undergoing major transformation and I started getting work from large corporates with high-yield consulting assignments. At the same time, the new projects business for capital equipment dried up in Hyderabad and  I decided to wind up Shika Marketing Services and concentrated full-time on my consulting business through Shika Management Services which grew in leaps and bounds from 1994 till 2009 when I decided to hang up my boots.

In the next post I shall share some cases of interesting work done between 1987 to 1990 when as mentioned before the Mandal commission report acceptance almost destroyed my consulting practice and I had to survive on the money made and saved from the marketing services business till reforms announced in 1992 turned the tide in favour of consulting again. But this also required that I had to learn new concepts and understand continuously the developments in Information technology to be relevant as a management consultant.